Book Review: The Golden Revolution

There are many books on the market today about the coming collapse of the
global dollar-based monetary system. Many of them purport to help the reader "profit" from
the collapse(!) Others are filled (just like the blogosphere from which they
often come) with dark, conspiratorial whispers, psychologizing of leaders in
government and finance, and preposterous ideas about how people actually think
and act. They often contain policy prescriptions that consist of doing more
of what caused the problem in the first place: politicizing banking and trading
with even more regulations, taxes, prohibitions, agencies, etc.

I have not written a book review before now because I think those books are
misguided. The nihilistic envy of corporations and banks is a part of the problem
and not the solution. The idea that "real estate, stocks, and bonds have had
their bubbles and now it's our turn" is naïve, at best.

The Golden Revolution by John Butler is not cut from the same cloth.

We have a perverse and self-defeating monetary system today. Without knowing
how it evolved, where it came from, and what transitions occurred along the
way, it is almost incomprehensible. One can listen to the talking heads on
the mainstream media, the strident alternative financial press, or even economists
who really understand, and still not understand why the monetary system is
the way it is or how it operates. How is one to evaluate whether a failure
of regulation caused the collapse of 2008 or whether China-India trade denominated
in yuan will threaten the US dollar's reserve status?

Mr. Butler covers the history of what led up to 2008, without dwelling too
much on details that will bore most readers. It is important to understand
the connection between Nixon's 1971 default on the US government's gold obligations
and today's endemic perpetual crisis. Mr. Butler sheds some light on what led
up to Nixon's decision. The monetary system today is the product of Nixon's
decision and Nixon's decision was the product of an untenable framework that
was created after World War II (which itself was the product of earlier decisions,
etc.)

Mr. Butler makes the radical (perhaps not to most of my readers!) proposition
that the world will end up, one way or the other, on some form of a gold standard.
He explores this from various perspectives including Game Theory. He makes
a compelling argument, not based on what some shadowy "they" want, but uses
a very "Austrian Economics" method. He looks at how each player will react
to unfolding events and why they will behave in certain ways.

Human action is not the action of particles of an ideal gas, as modern econometrics
presumes. Nor is it the shuffling of sleeping sheep guided by all-knowing shepherds
as modern public policy theories would suggest, nor is it accurate to portray
the citizens as simply obeying orders they hate strictly under compulsion of
a dictator. There is a feedback process between the governor and the governed.
Each is pursuing what he defines as his interest. And it is a dynamic system
that is inexorably moving somewhere.

I don't think I would spoil a book called The Golden Revolution to
say that the system is moving towards gold!

Mr. Butler devotes part of the book to discuss the transition itself, a topic
that is not much addressed yet. In a way it's insane: even the enemies of gold
must acknowledge that the current system is unsustainable in many different
ways and by any definition of sustainability. And yet few of them--or the "goldbugs" either--spend
much time thinking seriously and realistically about what the process of change
might look like, how it might occur, and how it will impact different people
and sectors.

And there is the question: transition to what? Gold is the money of a free
market. If one wants the opposite of a free market, i.e. socialism and central
planning, then one should be happy for the government to simply print ration
coupons for the things it decides that one needs; there is no need for gold.
I found a particular pleasure to read Mr. Butler's discussion of regulation
and even the very existence of central banks. Why do we need them? Is it even
conceivable to live without them?

Along the way, Mr. Butler tackles the Capital Asset Pricing Model, showing
how unnaturally low interest rates caused by central banks distort the market's
ability to allocate capital. Most people focus on the propensity of prices
to rise, and do not think about the impact of the interest rate. If the former
can be thought of as a tax, and the latter as something which forces capital
out of certain sectors and into others, then it is obvious that distorted interest
rates do more damage to the economy. And further, as Mr. Butler shows, GDP
is a false measure that is not helpful in understanding the distortion or the
consequent damage.

John Butler has had a career at major banks, working in interest rates and
foreign exchange. He is on the leading edge of the trend towards re-monetizing
gold, being the first that I have seen to report on the Basel and subsequently
the FDIC/Fed/OCC proposed rules to allow banks to hold gold as a zero risk-weight
asset.

In The Golden Revolution, he has written an important book that should
be of interest to any serious observer or participant of the financial system
and especially to advocates of sound money.

Keith is founder of the Gold Standard Institute USA in Phoenix, Arizona,
and CEO of precious metals fund manager Monetary Metals. He created DiamondWare,
a technology company which he sold to Nortel Networks in 2008.